Showing posts with label Memorandum of Association. Show all posts
Showing posts with label Memorandum of Association. Show all posts
MEMORANDUM OF ASSOCIATION
According to Section 2(56) of the Companies Act, 2013 “memorandum” means the memorandum of association of a company as originally framed and altered from time to time in pursuance of any previous company law or this Act.
The Memorandum of Association is a document which sets out the constitution of a company and hence, it is the foundation on which the structure of the company is built and defines the scope of the company’s activities and its relations with the outside world. It is a pre-requisite for the incorporating a company as Section 3 states that any 7 or more persons in case of a Public Company, 2 or more persons in case of a Private Company or 1 person in case of One Person Company can incorporate a company for a lawful purpose by subscribing their names to a memorandum and complying the other requirements of the Act for incorporation.
“The memorandum of association of a company is its charter and defines the limitations of the company’s powers; it contains in it both that which is affirmative and that which is negative. It states affirmatively the ambit and extent of vitality and powers which by law are given to the corporation, and it states negatively, if it is necessary to state, that nothing shall be done beyond that ambit” [Ashbury Railway Carriage & Iron Co. Ltd. v. Riche]
Forms of Memorandum of Association [Section 4(6)]
MOA of the company shall be in as per the table A/B/C/D/E prescribed in Schedule I of the Act.
· Table A: MOA of the company limited by shares.
· Table B: MOA of the company limited by guarantee not having share capital.
· Table C: MOA of the company limited by guarantee having share capital.
· Table D: MOA of the unlimited company not having share capital.
· Table E: MOA of the unlimited company having share capital.
Contents of MOA [Section 4 read with Sch. I]
1. Name Clause: This clause indicates the nature of the company i.e. private or public.
2. Situation Clause/ Registered Office Clause: It specifies the state in which the registered office is situated.
3. Object Clause: It states the object of the company proposed to be undertaken.
4. Liability Clause: It states that liability of the member is limited or unlimited.
5. Capital Clause: It states the amount of the capital with which the company is registered.
6. Subscription Clause/ Association Clause: Subscribers agree to subscribe the prescribed no. of shares stated against their name in the memorandum. Each subscriber must take at least one share.
NAME CLAUSE
· The name of the company shall contain the word “Limited or Private Limited” at its end unless a license is granted under section 8.
· The name of the company shall not resemble with any existing company.
· The name will not constitute an offence under any law for the time being in force.
· The name shall not be undesirable in the opinion of the C.G. [Rule 8 of Companies (Incorporation) Rules, 2014].
· The name shall not give impression that the company is associated with or having the patronage of, the Central Government or State Government or any entity of the government unless prior approval of the Central Government has been obtained.
· MCA has also clarified that the proposed name shall not be prevented by “Emblems and Names (Prevention of Improper Use) Act, 1950.
· If the company is not an information technology company, then the name of the company shall not reflect that the company is in information technology business.
· The Registrar must make preliminary enquiries to ensure that the name allowed by him is not misleading or intended to deceive with reference to the Objects Clause of the memorandum [Methodist Church v. Union of India]. However, the Registrar shall not require to do elaborate investigation.
SITUATION CLAUSE/ REGISTERED OFFICE CLAUSE
· Only name of the state is required to be mentioned, not the complete address.
· Within 15 days of its incorporation, and at all times thereafter, the company must have a registered office to which all communications and notices may be sent. [Section 12(1)]
· The company shall file E-form INC 22 to the Registrar for the verification of its registered office within 30 days of its incorporation [Section 12(2)]. {For company limited by shares:- e- form INC 22 shall be filed before the commencement of business or exercising borrowing power or 30 days of its incorporation, w.e. is earlier.}
Publication of the name and address along with other details [Section 12(3)]
Every company shall—
(a) paint or affix its name, and the address of its registered office, and keep the same painted or affixed, on the outside of every office or place in which its business is carried on, in a conspicuous position, in legible letters, and if the characters employed therefor are not those of the language or of one of the languages in general use in that locality, also in the characters of that language or of one of those languages;
(b) have its name engraved in legible characters on its seal;
(c) get its name, address of its registered office and the Corporate Identity Number along with telephone number, fax number, if any, e-mail and website addresses, if any, printed in all its business letters, billheads, letter papers and in all its notices and other official publications; and
(d) have its name printed on hundies, promissory notes, bills of exchange and such other documents as may be prescribed:
Provided that where a company has changed its name or names during the last two years, it shall paint or affix or print, as the case may be, along with its name, the former name or names so changed during the last two years as required under clauses (a) and (c):
Provided further that the words ‘‘One Person Company’’ shall be mentioned in brackets below the name of such company, wherever its name is printed, affixed or engraved.
OBJECT CLAUSE
· All companies must state in their memorandum the objects for which the company is proposed to be incorporated and any matter considered necessary in furtherance thereof.
· It shall not be illegal and undesirable as per the law.
· It indicates the purpose for which company has been set up and limits the area of operation for the company.
· The acts beyond the ambit of Object Clause are ultra vires and void.
Doctrine of Ultra Vires
The word ‘ultra’ means beyond and the word ‘vires’ means powers. Hence the acts/ contracts done by the company which are beyond the scope of the Object Clause of the memorandum/ power granted are Ultra Vires and therefore, such acts or contracts are void-ab-initio. The acts which are ultra vires do not bind the company for the act and neither of the parties can sue other for such acts.
The company cannot make the ultra vires action valid, even if every member assents to it. In other words, we can say that the Memorandum of Association is the ‘Lakshman Rekha’ for a company. An act beyond the objects mentioned in the memorandum is ultra vires and void and cannot be ratified [Dr. Lakshmanaswami Mudaliar A. v. LIC]
The general rule is that an act which is ultra vires the company is incapable of ratification. An act which is intra vires the company but outside the authority of the directors may be ratified by the company in proper form [Rajendra Nath Dutta v. Shilendra Nath Mukherjee, (1982) 52 Com Cases 293 (Cal.)].
The rule is meant to protect shareholders and the creditors of the company. If the act is ultra vires the directors only, the shareholders can ratify it. If it is ultra vires the articles of association, the company can alter its articles in the proper way.
Effects of ultra vires Transactions
· Contracts are void ab initio.
· Permanent injunction order can be taken against the company.
· Personal liability of the directors.
LIABILITY CLAUSE
Liability clause states either “liability of a member is limited to the extent the amount unpaid on the shares held by him” or “ liability of a member is limited to the extent the amount is guaranteed to be provided by him in the event of winding up.”
CAPITAL CLAUSE
Capital clause states the authorized/ nominal/ registered share capital of the company. The registration fee and stamp duty is payable at the time of incorporation, on the basis of the authorized/ nominal capital.
· Authorised/ Registered/ Nominal Capital:- means the capital as mentioned in “capital clause” in the memorandum of the company.
· Issued Capital:- Issued capital is that portion of authorized capital which is actually issued by the company. Company can issue shares maximum upto authorized capital.
· Subscribed Capital:- It is the portion of the issued capital which is actually subscribed by the investors.
· Called-up Capital:- It is that portion of the subscribed capital which is called by the directors, to be paid by the members.
· Paid-up Capital:- It is that portion of the called-up capital which is actually paid by the members.
· Uncalled Capital:- It is that portion of the subscribed capital which is yet to be called by the directors.
SUBSCRIPTION CLAUSE/ ASSOCIATION CLAUSE
Each subscriber shall take at least one share and write opposite to his name the number of shares he agrees to take [Section 4(1)].
ALTERATION OF MEMORANDUM OF ASSOCIATION [Section 13]
The MOA of the company can be altered by passing special resolution and complying with the requirements of the Act.
1. Alteration of the Name Clause
· The name clause can be altered by a special resolution and with the approval of the Central Government (now power has been delegated to ROC). The application to the ROC is made in e-form INC 24.
· The Registrar shall issue fresh Certificate of Incorporation and enter the same in the register of companies maintained in place of old name.
· There is no need to take approval from the ROC for addition or deletion of the word “Private” in the name of the company. In other words, for conversion of private company into public company or public company into private company there is no need to take approval of the ROC, only a special resolution duly passed is sufficient.
· E-form MGT 14 shall be filed within 30 days from the date of passing of the special resolution.
· Change in the name of the company shall not be allowed to a company which has defaulted in filing its annual returns or financial statements or any documents due for filing with the Registrar or which has defaulted in repayment of matured deposit or debenture or interest on deposits or debenture.
Rectification of the name of the company: Section 16 {The power of C.G is delegated to R.D}
(1) If, through inadvertence or otherwise, a company on its first registration or on its registration by a new name, is registered by a name which,—
(a) in the opinion of the Central Government, is identical with or too nearly resembles the name by which a company in existence had been previously registered, whether under this Act or any previous company law, it may direct the company to change its name and the company shall change its name or new name, as the case may be, within a period of three months from the issue of such direction, after adopting an ordinary resolution for the purpose;
(b) on an application by a registered proprietor of a trade mark that the name is identical with or too nearly resembles to a registered trade mark of such proprietor under the Trade Marks Act, 1999, made to the Central Government within three years of incorporation or registration or change of name of the company, whether under this Act or any previous company law, in the opinion of the Central Government, is identical with or too nearly resembles to an existing trade mark, it may direct the company to change its name and the company shall change its name or new name, as the case may be, within a period of six months from the issue of such direction, after adopting an ordinary resolution for the purpose.
(2) Where a company changes its name or obtains a new name under sub-section (1), it shall within a period of fifteen days from the date of such change, give notice of the change to the Registrar along with the order of the Central Government, who shall carry out necessary changes in the certificate of incorporation and the memorandum.
(3) If a company makes default in complying with any direction given under sub-section (1), the company shall be punishable with fine of one thousand rupees for every day during which the default continues and every officer who is in default shall be punishable with fine which shall not be less than five thousand rupees but which may extend to one lakh rupees.
Note:-The change of the name of the company does not imply that there is a change in the constitution of the company [In Re: Economic Investment Corporation Ltd.] and the proceedings commenced by the company in its former name can be continued under its new name [Solvex Oils and Fertilizers v. Bhandari Cross-Fields (P) Ltd.]
2. Alteration of the Situation Clause/ Registered Office Clause
· Within the local limits of the city/town/village
- By passing Board Resolution.
- Form INC 22 is filed to the ROC within 15 days of the change in registered office.
- This change does not involve alteration of memorandum.
· From one city/town/village to another city/town/village within same state
- By passing a special resolution.
- Form INC 22 is filed within 15 days of the change to the ROC.
- Form MGT 14 is filed within 30 days of the passing of the special resolution.
· Within the same state but from the jurisdiction of one ROC to another ROC
- Special Resolution shall be passed in the general meeting for the change and form MGT 14 shall be filled within 30 days of the passing of the resolution.
- Confirmation from RD shall be obtained u/s 12(5).
- The application to the RD is made in form INC 23 and RD shall dispose off the matter within 30 days
from the date of receipt of the application.
- The company shall file a copy of the order within 30 days of confirmation order of the RD to the concern ROC.
- One month before filing application to the RD, the company shall:-
(a) publish a notice in two daily newspaper, one publish in English and other in the principal language of the district where the registered office is situated and circulating in that district; and
(b) serve individual notice on each debenture holder, depositor and creditor of the company indicating the propose change and stating that if any interest of any person is effected from the proposed change then he may intimate his nature of interest and grounds of opposition to the RD with a copy to the company within 21 days of the date of the publication of the notice.
· From one State to another
- Change attracts alteration of memorandum and has to obtain fresh certificate of incorporation.
- Special Resolution pursuant to Section 13(1) is passed and form MGT 14 shall be filed within 30 days of the passing of the resolution.
- Prior approval of the C.G (now delegated to RD) u/s 13(4) shall be obtained. The application is filed to the RD in form INC 23 and the RD shall dispose off the application within 60 days.
- The company shall file the RD’s order approving the shifting of the registered office in form INC 28 within 30 days of the receipt of the certified copy of the order to the registrar of the both the States within whose jurisdiction it falls.
- An application shall be filed to the Chief Secretary of the concerned State Government or the Union Territory along with the affidavit from the directors of the company that no employee shall be retrenched as a consequence of the shifting of the registered office.
3. Alteration of the Object Clause
· Pass special resolution (by postal ballot if there is still unutilized amount of the amount raised through prospectus for the existing object or by a listed company)
· MGT 14 shall be filed to the ROC within 30 days for the registration of the alteration made.
· ROC shall register the alteration of the memorandum and certify the registration within 30 days of the filing of the special resolution.
Note: For deletion of any portion of the objects clause, the same procedure has to be followed.
4. Alteration of the Liability Clause
Liability clause of the company can be altered by passing special resolution. Mgt 14 shall be filed within 30 days from the date of passing of the resolution.
5. Alteration of the Capital Clause [Section 61]
(1) A limited company having a share capital may, if so authorised by its articles, alter its memorandum in its general meeting by passing ordinary resolution to—
(a) increase its authorised share capital by such amount as it thinks expedient;
(b) consolidate and divide all or any of its share capital into shares of a larger amount than its existing shares:
Provided that no consolidation and division which results in changes in the voting percentage of shareholders shall take effect unless it is approved by the Tribunal on an application made in the prescribed manner;
(c) convert all or any of its fully paid-up shares into stock, and reconvert that stock into fully paid-up shares of any denomination;
(d) sub-divide its shares, or any of them, into shares of smaller amount than is fixed by the memorandum, so, however, that in the sub-division the proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in the case of the share from which the reduced share is derived;
(e) cancel shares which, at the date of the passing of the resolution in that behalf, have not been taken or agreed to be taken by any person, and diminish the amount of its share capital by the amount of the shares
so cancelled.
(2) The cancellation of shares under sub-section (1) shall not be deemed to be a reduction of share capital.
In addition to the above, S.R. shall be passed for altering the memorandum and the resolution shall be filed to the ROC within 30 days from the date of passing of the resolution.
Note:- As per section 13(11), any alteration of the memorandum, in case of a company limited by guarantee and not having share capital, purporting to give any person a right to participate in the divisible profits of the company otherwise than as a member, shall be void.
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